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Commentary: Privatization Doesn't Always Pay Off

Fresno State

Is it more efficient for local and state governments to privatize provision of government services to save money? In this edition of Valley Public Radio’s commentary series The Moral Is Ida Jones, Professor of Business Law at Fresno State argues that there are hidden costs to privatization. Using for-profit prisons as an example, she connects increased privatization to higher long-term social and financial costs.


Privatization is the buzzword that represents tax-revenue strapped governments transferring services to the private sector to save money. But does it?

Supporters of privatization argue that there will be cost savings through eliminating government bureaucracy and reducing taxes. No longer will taxpayers have to pay for guaranteed jobs, lazy workers, red tape and inflexibility that come with government services. Supporters also argue that private enterprise can deliver government services more efficiently and cheaper, providing increased tax revenue and more services for fewer dollars..

How well has that worked? Let’s take one example.

For-profit prisons have become a multi-billion dollar industry that spends millions lobbying for criminal law reform. According to an article in the New York Times, the U.S., which has 5% of the world’s population, has nearly 25% of its prisoners. The U.S. incarcerates more people for more crimes and for longer than any other industrialized nation. There are a variety of reasons for that-but the trend toward privatizing prisons parallels the significant increase in the numbers of prisoners, the number of crimes that result in prison sentences and increased prison terms.

The main argument for privatizing prisons is that they save money. However, the cost-savings results are decidedly mixed. And there are reports that those savings come at the expense of low employee wages and terrible prison conditions. After all, in order to make a profit incarcerating people, one must reduce costs somewhere. Private for-profit prisons have no incentive to reduce recidivism or rehabilitate prisoners. After all, the more prisoners, the more money and thus more profit.

This example illustrates the problem with the current focus on privatization – the providing government services is reduced to a balance sheet without looking at society’s longer-term needs. First, government jobs were the only jobs that provided job security and good benefits. And, for many years, these were the only jobs minorities could find where hiring was based on merit. Typically that meant that although the job may not pay as much as one in the private sector, the tradeoff of job security and benefits made it worthwhile for individuals and for society. And after all, doesn’t society benefit in the long run when people are employed and have job security?

Second, people who have job security are willing to, and did, purchase houses, cars and other consumer products that generated income and jobs for others in society. They spent more of their income, rather than saving it, and that spending helped to fuel the economy.

Finally, the U.S. is a country that prides itself on encouraging independence and self-reliance. What happens to those values when you move large numbers of people to jobs where there is no job security? It creates an atmosphere where people no longer feel that same independence. These are consequences that cannot be directly measured through a balance sheet.

Privatization should not be considered the panacea that will cure government’s economic woes. There is more to delivery of government services than the financial cost.

The views expressed on The Moral Is are those of the author and do not necessarily represent the views of Valley Public Radio.

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